There is a very small, local story for the blog, but it sure caught my attention as an example of the current state of commercial real estate, especially restaurant space in the Valley. There have been a number of restaurants close in Stockton during the recession, so there are prime vacant spaces around town.
The most prime restaurant location in town is probably the former Mallard's/Maxim's on the corner of March Lane and Brookside Road. Yes, the last two operator's have not been strong, but this is a newer restaurant building in a visible, waterfront location in the heart of the City's highest income neighborhood. When it went up for sale, I thought this surely was an opportunity for a good restaurant operator to come into a prime location at a favorable price.
So, I was stunned to see in this morning's Record that it was sold to a Congregational Church with 300 members with an attendance of about 60 on any given Sunday. I bet their membership will grow in the new location, but I was still surprised to see that a church could outbid a restaurant for this building. Apparantly, many restaurants looked at the space, but were unable to get financing for a purchase (no surprise given the current credit and economic environment).
I grew up in a quaint historic town that actually had a church on all 4 corners of it's most prominent intersection, so I personally kind of like a church on the corner. Congratulations to the First Congregational Church on their exciting new location.
I expect a lot of interesting repurposing of commercial space over the next decade in the Valley.
A discussion of economic, business, and environmental issues of importance in the Central Valley.
Wednesday, March 31, 2010
Monday, March 29, 2010
Are Stockton Prison Hospitals in Jeopardy?
I am not sure if there is a real risk here or if it is just negotiating tactics, but an article in the Record late last week and Don Blount's column today makes it sound as if the Department of Corrections' might take this project somewhere else because of the demands of local government and the chamber of commerce.
I have yet to see any information and arguments to change my opinion about this topic since my original post on the subject last October.
It's time to stop negotiating and start turning dirt on this project.
I have yet to see any information and arguments to change my opinion about this topic since my original post on the subject last October.
It's time to stop negotiating and start turning dirt on this project.
Friday, March 26, 2010
Unemployment Friday
Not a lot of excitement in this month's report. We continue to sit in the bottom of the trough, moving sideways looking for signs of renewed growth. Statewide unemployment remains at 12.5%. Construction employment continues to be a major drag, just as it has for the past 3-4 years.
Most metro areas also show the sideways pattern from January to February.
Regionally, the Los Angeles area (LA and Orange County) had the strongest month, and the Bay area was the weakest (especially the East Bay).
Most metro areas also show the sideways pattern from January to February.
Regionally, the Los Angeles area (LA and Orange County) had the strongest month, and the Bay area was the weakest (especially the East Bay).
Thursday, March 25, 2010
New AB 32 Cost Studies: What does small mean?
Finally, we have some good economic modelling of AB 32. California Air Resource Board (CARB) and Charles River Associates (CRA) have released a pair of reasonable assessments with good models.
CARB is highlighting the best case scenario, which is roughly no impact, and most media articles are reporting the costs are low or zero. A summary of the results.
CARB: Income declines 0.2% - 1.4%, jobs decline 6,000 to 300,000
CRA: Income declines 1.4% - 2.2%.
I think the most likely case is a decline of 1% to 1.5% of income, and 200,000 to 300,000 jobs. In other words, this amounts to about $500 per capita annually, and an annual cost of $20 to $30 billion.
Can the state afford it? Sure. But is it correct to call it a small cost? Here are some comparisons.
Today, the BEA released estimates of California personal income for 2009. Per capita income in California dropped 3.5% between 2008 and 2009, and it is more like a 5% decline if you don't count increased government transfer payments like unemployment. We lost roughly 900,000 jobs in California over the same period.
So, the on-going cost of AB 32 on the economy is likely to be about 1/4 of our loss in the heart of the recession, and 1/5 to 1/6 of the entire loss in the Great Recession. Certainly, we can survive that, but is it small?
Let's think of another environmental case: the big Dr. Doom earthquake scenario in the Delta that floods dozens of islands and is said to take the pumps off-line for a year or two. The cost of that has been estimated at $30 billion to $40 billion spread over several years. But that is just a short-term impact whereas the AB 32 costs are perennial. So, the costs of AB 32 are much larger than the big Delta earthquake.
If is said that this Delta earthquake would "cripple" the California economy and cut off it's "lifeblood." Well, the costs of AB 32 look to be larger so shouldn't those same people be saying that AB 32 would kill the economy. (Actually, some folks like Dave Cogdill are consistent with their criticism, I'm thinking more of the Governor here. And I don't think AB 32 does kill the economy, just as I don't think the Delta quake is as devastating as it is portrayed.)
The other interesting thing in the CARB report are the estimated costs by industries. These industries will endure above average costs and job loss: construction, transportation/warehousing, agriculture, manufacturing. In other words, the costs of AB 32 will fall directly on the Valley's economic base. These industries are projected to have below average costs or gains: Information and services, the coastal economic base.
I would recommend some detailed geographical modeling to CARB, and some measures to mitigate the costs on the Valley if my hypothesis is correct.
None of this is to say that we should repeal AB 32 or that the costs are too high for California to afford. But we shouldn't be too dismissive of these costs either, especially when it comes to the Central Valley.
CARB is highlighting the best case scenario, which is roughly no impact, and most media articles are reporting the costs are low or zero. A summary of the results.
CARB: Income declines 0.2% - 1.4%, jobs decline 6,000 to 300,000
CRA: Income declines 1.4% - 2.2%.
I think the most likely case is a decline of 1% to 1.5% of income, and 200,000 to 300,000 jobs. In other words, this amounts to about $500 per capita annually, and an annual cost of $20 to $30 billion.
Can the state afford it? Sure. But is it correct to call it a small cost? Here are some comparisons.
Today, the BEA released estimates of California personal income for 2009. Per capita income in California dropped 3.5% between 2008 and 2009, and it is more like a 5% decline if you don't count increased government transfer payments like unemployment. We lost roughly 900,000 jobs in California over the same period.
So, the on-going cost of AB 32 on the economy is likely to be about 1/4 of our loss in the heart of the recession, and 1/5 to 1/6 of the entire loss in the Great Recession. Certainly, we can survive that, but is it small?
Let's think of another environmental case: the big Dr. Doom earthquake scenario in the Delta that floods dozens of islands and is said to take the pumps off-line for a year or two. The cost of that has been estimated at $30 billion to $40 billion spread over several years. But that is just a short-term impact whereas the AB 32 costs are perennial. So, the costs of AB 32 are much larger than the big Delta earthquake.
If is said that this Delta earthquake would "cripple" the California economy and cut off it's "lifeblood." Well, the costs of AB 32 look to be larger so shouldn't those same people be saying that AB 32 would kill the economy. (Actually, some folks like Dave Cogdill are consistent with their criticism, I'm thinking more of the Governor here. And I don't think AB 32 does kill the economy, just as I don't think the Delta quake is as devastating as it is portrayed.)
The other interesting thing in the CARB report are the estimated costs by industries. These industries will endure above average costs and job loss: construction, transportation/warehousing, agriculture, manufacturing. In other words, the costs of AB 32 will fall directly on the Valley's economic base. These industries are projected to have below average costs or gains: Information and services, the coastal economic base.
I would recommend some detailed geographical modeling to CARB, and some measures to mitigate the costs on the Valley if my hypothesis is correct.
None of this is to say that we should repeal AB 32 or that the costs are too high for California to afford. But we shouldn't be too dismissive of these costs either, especially when it comes to the Central Valley.
Wednesday, March 24, 2010
Some Good News on Mortgage Modification
Bank of America developing a principal reduction program, and Treasury may follow. Details matter a lot, but my first overall take is positive. We have years of destructive foreclosures ahead of us in the Valley without a major move of this kind. Better late than never.
The bank (BOA), the largest mortgage servicer in the country, said Wednesday it will forgive up to 30 percent of some customers' total mortgage balances. The homeowners must have missed at least two months of mortgage payments and owe at least 20 percent more than their home is currently worth...Read the full article here.
The Treasury Department, which already has a mortgage modification program, is developing similar plans for principal reductions at other mortgage servicers, according to industry officials speaking on condition of anonymity because they were not authorized to discuss the conversations. They said an announcement could come in the next few months.
"They're talking about doing something and talking seriously about it," Julia Gordon, senior policy counsel at the Center for Responsible Lending, a consumer group, said of Treasury officials. "I think the concern now is fairness and making sure that the public understands the importance of principal reductions toward stabilizing the housing market and helping everybody."
The plan does carry risks. For starters, borrowers who aren't 60 days behind on their mortgages may stop making payments so they can qualify. The more borrowers who try to qualify, the bigger the potential loss for Bank of America. The bank will also have to absorb the costs of renegotiating the loans.
Even so, "the move helps create the best prospect of avoiding a further downward home price spiral, which would result in even deeper losses" for the bank, said Howard Glaser, a mortgage industry consultant, in an e-mail...
Lenders including Bank of America have been criticized for not helping enough borrowers to complete the Obama administration's $75 billion mortgage modification program, which is widely viewed as a disappointment. Only 170,000 homeowners have completed the program so far.
The (Obama) mortgage modification program does not address the problems of borrowers who are considered underwater, or owing more than their homes are worth.
New Varshney/Tootelian statement has new errors
There is a saying that when you are in a hole, stop digging. That's my advice for Dean Varshney and Dennis Tootelian after reading the statement they released last night. It makes many odd arguments, and a few statements about their own work which are demonstrably false. Here are two examples.
First, some excerpts about the cost of regulation study.
1. He says Crain used ordinal rankings of regulations like them. Not true, Crain used a cardinal index of the intensity of regulations for countries produced by the OECD. See page 68 of Crain's report.
2. Crain uses per capita GDP (GDP/pop) as the dependent variable in his regression, not GDP as Varshney does. This error has been the focus of LAO and others critique. See this post for more.
3. Crain did not enter the projected change in GDP from his regression into an input-output model (IMPLAN) as Varshney/Tootelian do. This is a major error, that almost tripled their already inflated estimate of costs (from $177 billion to $493 billion).
Second, I am really confused by this part of their statement.
This comment has absolutely nothing to do with the current issue, which is about their AB32 and cost of regulation studies. However, as someone who does a fairly prominent forecast of the Sacramento economy, I feel compelled to correct a few errors of fact in this statement.
I don't recall any critics "taking issue" with the inaugural Sacramento Business Review forecast in January 2009. I also don't recall anyone who was forecasting that Sacramento unemployment would be under 8% at that time, and certainly no one issued a new forecast saying this after the Sacramento State release. I checked the forecast we released a month earlier in December 2008, and we were forecasting Sacramento unemployment would average over 9% for the year in 2009, and our release two months later (March 2009) said Sacramento unemployment would reach 12% by the end of 2009.
Our December 2008 turned out to be too low, but it was the same as Varshney's in January 2009. He is misrepresenting his own forecast. If you look at the unemployment graph from this forecast he is boasting about (see figure 1 on page 8 of this report), you will see the Sacramento unemployment line briefly slips above 10% for the seasonal peaks, but is below 10% for almost the entire year! I don't get this statement of "being vindicated by the facts" and "critics taking issue."
They sent a news release on the very first monthly employment report after their very first forecast (January 2009 employment report released in March 2009) bragging about how they had acurately predicted that seasonally unadjusted unemployment spikes in the month of January, and he is doing the same thing today. I do recall privately criticizing that news release to a few people . Predicting an unemployment spike in January is like predicting that gasoline sales increase in the summer, retail sales increase during the holidays, the #1 seed will beat the #16 in the NCAA tournament, and the sun will rise tomorrow. Varshney keeps comparing his not seasonally adjusted peak values to others seasonally adjusted forecasts, but that isn't valid.
He needs to stop misrepresenting the facts and others' work. Stop complaining about politically motivated criticism of your politically motivated study. Put the shovel down.
Update: Matt Kahn and James Sweeney published a harsh and entirely correct op-ed in the LA Times today on the AB 32 study, which I didn't even mention above. It keeps getting deeper.
First, some excerpts about the cost of regulation study.
Furthermore, our report on the cost of regulations for small business was based on the 2005 federal study by Mark Crain which uses ordinal rankings...Rather than suggesting that regression methodology should not be used at all, our critics should recognize that the methodology comes with inherent issues of multicollinearity that can result in sign reversal. However, this methodology is useful and is no different than the federal study that Varshney and Tootelian modeled that also used ordinal rankings.It is true that their study is modeled after Crain's federal study, on-line here. Professionally, I have some quibbles with Crain's methodology, but the parts of Varshney's report people are criticizing is when he did not follow Crain. And these are not minor quibbles, but huge, inexplicable errors.
1. He says Crain used ordinal rankings of regulations like them. Not true, Crain used a cardinal index of the intensity of regulations for countries produced by the OECD. See page 68 of Crain's report.
2. Crain uses per capita GDP (GDP/pop) as the dependent variable in his regression, not GDP as Varshney does. This error has been the focus of LAO and others critique. See this post for more.
3. Crain did not enter the projected change in GDP from his regression into an input-output model (IMPLAN) as Varshney/Tootelian do. This is a major error, that almost tripled their already inflated estimate of costs (from $177 billion to $493 billion).
Second, I am really confused by this part of their statement.
4)Varshney and Tootelian have been criticized before for their research
findings, only to be vindicated by the facts. For example the Sacramento
Business Review – a product of Sacramento State – predicted a 10% unemployment
rate for Sacramento last year. Critics took issue with the economic projections
and instead projected an unemployment rate of no more than 8%. Sacramento region was at 12.3% unemployment at the close of last year and is currently at 13.1%
based on January 2010 numbers.
This comment has absolutely nothing to do with the current issue, which is about their AB32 and cost of regulation studies. However, as someone who does a fairly prominent forecast of the Sacramento economy, I feel compelled to correct a few errors of fact in this statement.
I don't recall any critics "taking issue" with the inaugural Sacramento Business Review forecast in January 2009. I also don't recall anyone who was forecasting that Sacramento unemployment would be under 8% at that time, and certainly no one issued a new forecast saying this after the Sacramento State release. I checked the forecast we released a month earlier in December 2008, and we were forecasting Sacramento unemployment would average over 9% for the year in 2009, and our release two months later (March 2009) said Sacramento unemployment would reach 12% by the end of 2009.
Our December 2008 turned out to be too low, but it was the same as Varshney's in January 2009. He is misrepresenting his own forecast. If you look at the unemployment graph from this forecast he is boasting about (see figure 1 on page 8 of this report), you will see the Sacramento unemployment line briefly slips above 10% for the seasonal peaks, but is below 10% for almost the entire year! I don't get this statement of "being vindicated by the facts" and "critics taking issue."
They sent a news release on the very first monthly employment report after their very first forecast (January 2009 employment report released in March 2009) bragging about how they had acurately predicted that seasonally unadjusted unemployment spikes in the month of January, and he is doing the same thing today. I do recall privately criticizing that news release to a few people . Predicting an unemployment spike in January is like predicting that gasoline sales increase in the summer, retail sales increase during the holidays, the #1 seed will beat the #16 in the NCAA tournament, and the sun will rise tomorrow. Varshney keeps comparing his not seasonally adjusted peak values to others seasonally adjusted forecasts, but that isn't valid.
He needs to stop misrepresenting the facts and others' work. Stop complaining about politically motivated criticism of your politically motivated study. Put the shovel down.
Update: Matt Kahn and James Sweeney published a harsh and entirely correct op-ed in the LA Times today on the AB 32 study, which I didn't even mention above. It keeps getting deeper.
Tuesday, March 23, 2010
Hitting the Sweet Spot on the Homebuyer Tax Credit
The California Legislature just passed (and the Gov is sure to sign) an expanded $10,000 tax credit to first-time buyers of existing homes or any buyer of a newly built home that closes escrow after May 1. (The California tax credits will expire after $100 million has been awarded in each of the two categories.)
In doing so, they have given an unexpected gift to some buyers who were taking advantage of the federal homebuyer tax credit that expires April 30. How? The federal credit just required you to be in contract before April 30, but the home only needed to close escrow before June 30. The California credit is for any house that closes escrow May 1 or later, until the $200 million runs out. Putting a home under contract before May 1 and closing before June 30 appears to be the first-time homebuyer sweet spot.
I have a friend, "Susan", who just signed a contract to purchase a home and is set to close escrow in mid-May. Susan was definitely going to purchase a home this year, but was induced to look a little harder before the end of April so she could take advantage of the federal tax credit. She was successful, and has just learned that she will be receiving an additional $10,000 complements of California taxpayers.
So, what is the effect of these homebuyer programs? Susan shifted her purchase forward a few months in time in order to pocket the Federal tax credit. She is now receiving an unanticipated $10,000 windfall from the state of California too. What was the stimulative effect we received for transferring $18,000 to Susan? Zero. Did it serve a societal social goal? No. As a first time buyer with a young family, Susan was already going to do very well buying into the market at this time regardless of the credit. Did it increase the housing stock (i.e. total wealth)? No, even if used to buy a new home, it is just moved the purchase up a few months in time.
Instead of current first-time homebuyers, we should provide assistance to people who were first-time homebuyers between 2003 and 2008, and are now hopelessly underwater. If we must throw taxpayer funds at the real estate market, we should be using these funds to keep these people in their homes if they have the income to afford their house at the current market price (and didn't go crazy cashing in their equity). These are the young famiies that are the innocent victims of this mess, and we are just creating incentives for them to default and create all the external social costs on neighborhoods, property damage, and family disruptions that come alone with it. Preventing foreclosures like these produces a quadruple benefit of stabilizing the real estate market (which is good for home builders) AND avoiding property damage and neighborhood issues from foreclosures AND reducing losses to banks AND helping a family in need.
Instead, we give tax credits for buyers who are already benefiting from their market timing. I think it's great to see people taking advantage of the more affordable housing, but I don't know that a bonus payment is necessary for the fortunate ones who buy between May 1 and when these funds are inevitably exhausted in a few months. Of course, this approach does generate real estate commissions, so it has a strong lobby. And you can bet that lobby will be back again and again and again to continue pushing for renewing and expanding this latest real estate subsidy for a 3rd time, 4th time, and forever.
I am happy for Susan, and I am glad that at least one nice family I know is benefitting from the homebuyer tax credit give-away. I told "Susan" I wouldn't embarrass her by using her real name in this blog post if she spent some of the $18,000 windfall buying me beer in a local tavern. That will also ensure that at least some of the funds stimulate the current economy.
Yes, I'm jealous and bitter because I don't qualify for the tax credits (I am not underwater either) while my children will be bearing the brunt of next year's education cuts. However, I think it would be hard to find an economist who would argue that these homebuyer credits are better for the California economy than keeping the $200 million in the budget to keep someone employed in a school next year.
Update: Roger Niello is my favorite member of the Assembly today.
In doing so, they have given an unexpected gift to some buyers who were taking advantage of the federal homebuyer tax credit that expires April 30. How? The federal credit just required you to be in contract before April 30, but the home only needed to close escrow before June 30. The California credit is for any house that closes escrow May 1 or later, until the $200 million runs out. Putting a home under contract before May 1 and closing before June 30 appears to be the first-time homebuyer sweet spot.
I have a friend, "Susan", who just signed a contract to purchase a home and is set to close escrow in mid-May. Susan was definitely going to purchase a home this year, but was induced to look a little harder before the end of April so she could take advantage of the federal tax credit. She was successful, and has just learned that she will be receiving an additional $10,000 complements of California taxpayers.
So, what is the effect of these homebuyer programs? Susan shifted her purchase forward a few months in time in order to pocket the Federal tax credit. She is now receiving an unanticipated $10,000 windfall from the state of California too. What was the stimulative effect we received for transferring $18,000 to Susan? Zero. Did it serve a societal social goal? No. As a first time buyer with a young family, Susan was already going to do very well buying into the market at this time regardless of the credit. Did it increase the housing stock (i.e. total wealth)? No, even if used to buy a new home, it is just moved the purchase up a few months in time.
Instead of current first-time homebuyers, we should provide assistance to people who were first-time homebuyers between 2003 and 2008, and are now hopelessly underwater. If we must throw taxpayer funds at the real estate market, we should be using these funds to keep these people in their homes if they have the income to afford their house at the current market price (and didn't go crazy cashing in their equity). These are the young famiies that are the innocent victims of this mess, and we are just creating incentives for them to default and create all the external social costs on neighborhoods, property damage, and family disruptions that come alone with it. Preventing foreclosures like these produces a quadruple benefit of stabilizing the real estate market (which is good for home builders) AND avoiding property damage and neighborhood issues from foreclosures AND reducing losses to banks AND helping a family in need.
Instead, we give tax credits for buyers who are already benefiting from their market timing. I think it's great to see people taking advantage of the more affordable housing, but I don't know that a bonus payment is necessary for the fortunate ones who buy between May 1 and when these funds are inevitably exhausted in a few months. Of course, this approach does generate real estate commissions, so it has a strong lobby. And you can bet that lobby will be back again and again and again to continue pushing for renewing and expanding this latest real estate subsidy for a 3rd time, 4th time, and forever.
I am happy for Susan, and I am glad that at least one nice family I know is benefitting from the homebuyer tax credit give-away. I told "Susan" I wouldn't embarrass her by using her real name in this blog post if she spent some of the $18,000 windfall buying me beer in a local tavern. That will also ensure that at least some of the funds stimulate the current economy.
Yes, I'm jealous and bitter because I don't qualify for the tax credits (I am not underwater either) while my children will be bearing the brunt of next year's education cuts. However, I think it would be hard to find an economist who would argue that these homebuyer credits are better for the California economy than keeping the $200 million in the budget to keep someone employed in a school next year.
Update: Roger Niello is my favorite member of the Assembly today.
The bill, AB 183, passed both houses of the Legislature by near unanimous votes. But one local lawmaker, Assemblyman Roger Niello, R-Fair Oaks, voted against it.
"I think it's a lot of money in a deficit situation that doesn't have the desired benefit," Niello said.
Friday, March 19, 2010
LAO on Varshney Studies
Yesterday, the LAO released a review of the Varshney and Associates AB32 and cost of regulations studies that I have blogged about here and here. The LAO does a nice job of laying out the many flaws, so I won't repeat them here.
However, there is one sentence buried in a paragraph on page 3 of the LAO review that was interesting new information to me (emphasis added).
However, there is one sentence buried in a paragraph on page 3 of the LAO review that was interesting new information to me (emphasis added).
The regression analysis has a number of problems. The biggest is that the relative size of states was not taken into account by V&T in explaining interstate differences in GSP. One way to have done this would be to have focused on explaining GSP adjusted for a measure of the size of each state, such as by using per capita GSP. The authors indicated to us that they in fact tried this methodology, but got poor results and thus did not use them. Our own regressions indicate that when per capita GSP is used, the regression outcomes dramatically change and become questionable. For instance, the regression itself explains only a bit over 10 percent of interstate differences in per capita GSP, and the regression coefficient measuring the effect of the regulatory index on the economy changes its sign from negative to positive. The latter finding, which also has been noted by other economists who have reviewed the V&T study, is inconsistent with the hypothesis that a poorer ranking on the regulatory environment index hurts GSP.If you understand regression analysis and research methods, that should certainly cause a raised eyebrow. It gives new meaning to this passage from today's Sacramento Bee article.
Varshney defended both studies in an interview Thursday, saying "we really gave
it our best shot and gave it our best efforts."
Tuesday, March 16, 2010
The Human Costs of General Obligation Bonds
Most projects funded by the $11 billion water bond can be financed by water users if they are truly worthwhile. Yes, I am talking about environmentally friendly water recycling projects too. All subsidized water encourages wasteful use.
Nearly half the state general fund is spent on education. It is virtually certain that this water bond will take funds away from K-12 and higher education. As a point of comparison, the $800 million annual tab for the water bond is more than the entire annual payroll of San Joaquin County public schools and it's over 17,000 employees or about 25% of the entire UC system's state funding.
The water bond is being pushed for economic development reasons, but I think it represents a decision between two different visions of the future economy. I am voting for the vision of a knowledge intensive economy that uses price signals to use natural resources efficiently. That means subsidizing education, not the use of natural resources.
Yesterdays pink slip announcements are a vivid reminder of the human impact of the choice between futures at the ballot box this fall.
Nearly half the state general fund is spent on education. It is virtually certain that this water bond will take funds away from K-12 and higher education. As a point of comparison, the $800 million annual tab for the water bond is more than the entire annual payroll of San Joaquin County public schools and it's over 17,000 employees or about 25% of the entire UC system's state funding.
The water bond is being pushed for economic development reasons, but I think it represents a decision between two different visions of the future economy. I am voting for the vision of a knowledge intensive economy that uses price signals to use natural resources efficiently. That means subsidizing education, not the use of natural resources.
Yesterdays pink slip announcements are a vivid reminder of the human impact of the choice between futures at the ballot box this fall.
California's budget crisis could cost nearly 22,000 teachers their jobs this year.
State school districts had issued 21,905 pink slips to teachers and other school employees by Monday, the legal deadline for districts to send preliminary layoff notices.
Not all the threatened layoffs will be carried out. The final tally depends on the state budget to be adopted for the coming fiscal year.
Last year, 60 percent of the 26,000 teachers who received pink slips ended up losing their jobs.
State Superintendent of Public Instruction Jack O'Connell expected this year's actual job losses to be high, given the state's persistent budget problems and the smaller pool of education stimulus money available from the federal government.
"These layoffs would be devastating to our schools, would harm our communities and would harm our education delivery system," he said.
California schools rank at or near the bottom nationally in academic performance, student-teacher ratios in middle and high school, access to guidance counselors and the percentage of seniors who go directly to four-year colleges, according to a 2009 report by the Institute for Democracy, Education and Access at the University of California, Los Angeles.
The state's public schools employ nearly 307,000 K-12 teachers, according to the state Department of Education. About 7 percent of those teachers have received pink slips.
The layoff figures do not include classified school employees such as bus drivers, maintenance workers and cafeteria staff. School districts have 45 days to issue pink slips to those workers, and as many as 10,000 could be facing unemployment, O'Connell said.
Monday, March 15, 2010
Corrected: Con peripheral canal: Final Exam Help for UC-Davis Delta Solutions Class
Update: I have been alerted by an astute reader that this course is from 2009, not 2010, so the premise of this post is wrong. I apologize for the mistake. I just happened upon the course website this weekend, and thought it was new. Unedited blogging has risks, see disclaimer on the side. I will leave the post up, since I think this course syllabus is insightful, and taking down your mistaken posts seems poor blogging ethics (if there is such a thing).
This post is for the unfortunate UC-Davis students have been assigned the task of arguing against the peripheral canal for tomorrow's final exam in the Delta Solutions course taught by the PPIC/UC-Davis team. You may be panicing and googling "con peripheral canal" arguments since your instructors have not prepared you for this assignment with their one-sided, self-indulgent reading list of nothing but their own reports. In fact, according to the syllabus, they have even taught you to mock anyone who questions their expert analysis, which supports the controversial peripheral canal.
In the debate, my advice is to simply say that it is irresponsible to spend over $10 billion on a controversial infrastructure project without a proper cost-benefit analysis. If your opponents cite the PPIC study, you can add that this study did not follow established scientific methods of cost-benefit analysis, used its own unvetted methodology that is biased towards building expensive infrastructure, and contains some serious errors of fact.
If you don't receive an A, complain to the Dean.
This post is for the unfortunate UC-Davis students have been assigned the task of arguing against the peripheral canal for tomorrow's final exam in the Delta Solutions course taught by the PPIC/UC-Davis team. You may be panicing and googling "con peripheral canal" arguments since your instructors have not prepared you for this assignment with their one-sided, self-indulgent reading list of nothing but their own reports. In fact, according to the syllabus, they have even taught you to mock anyone who questions their expert analysis, which supports the controversial peripheral canal.
1.On Mondays, 4:10-6pm, 60 minute presentation by an expert, followed by a discussion. In the discussion, students will act as members of a narrow interest group and ask the speaker ridiculous questions.
In the debate, my advice is to simply say that it is irresponsible to spend over $10 billion on a controversial infrastructure project without a proper cost-benefit analysis. If your opponents cite the PPIC study, you can add that this study did not follow established scientific methods of cost-benefit analysis, used its own unvetted methodology that is biased towards building expensive infrastructure, and contains some serious errors of fact.
If you don't receive an A, complain to the Dean.
Sunday, March 14, 2010
Sacramento Bee Editors Continue To Get it Right
Two weeks ago, I blogged about how I had noticed an increase in the quality of the Sac Bee opinion pages under new management. The streak continues.
This week's Sunday "conversation" features an exceptionally clear and thoughtful pair of essays on the economics of new arenas by Jock O'Connell and new Associate Editor Foon Rhee. They cover several key reasons why sports arenas usually fail to deliver the anticipated economic boost including entertainment spending substitution effects, and the high leakage of professional sports revenue salaries out of the community. They also cover key details about this proposed deal including the staggered timing and it's implication for financing costs, and the potential opportunity costs to state taxpayers of selling CalExpo into this deal and forgoing the possibility of a higher price in the open market. Despite all this, they are quite fair, and acknowledge that this proposal has a lot of strengths not typically seen in some other cities' arena failures. I agree that this plan has enough positives to deserve a good, long look; but all sports arena deals deserve healthy skepticism of thier purported economic benefits.
There is also a nice editorial on AB 32, and two important front page stories: Tomato King sees his empire crumble, and Jim Wasserman's article on bill collectors going after 2nd lien debts years after foreclosures and short sales.
And, I would be remiss if I didn't mention last weekends article by Editor Stuart Leavenworth describing the call he got from Diane Feinstein on his excellent Westlands editorial.
Kudos to Leavenworth and his team for making the Sac Bee an enjoyable, relevant and informative read.
This week's Sunday "conversation" features an exceptionally clear and thoughtful pair of essays on the economics of new arenas by Jock O'Connell and new Associate Editor Foon Rhee. They cover several key reasons why sports arenas usually fail to deliver the anticipated economic boost including entertainment spending substitution effects, and the high leakage of professional sports revenue salaries out of the community. They also cover key details about this proposed deal including the staggered timing and it's implication for financing costs, and the potential opportunity costs to state taxpayers of selling CalExpo into this deal and forgoing the possibility of a higher price in the open market. Despite all this, they are quite fair, and acknowledge that this proposal has a lot of strengths not typically seen in some other cities' arena failures. I agree that this plan has enough positives to deserve a good, long look; but all sports arena deals deserve healthy skepticism of thier purported economic benefits.
There is also a nice editorial on AB 32, and two important front page stories: Tomato King sees his empire crumble, and Jim Wasserman's article on bill collectors going after 2nd lien debts years after foreclosures and short sales.
And, I would be remiss if I didn't mention last weekends article by Editor Stuart Leavenworth describing the call he got from Diane Feinstein on his excellent Westlands editorial.
Kudos to Leavenworth and his team for making the Sac Bee an enjoyable, relevant and informative read.
Friday, March 12, 2010
Does UC-Davis know labor contractors are farm jobs?
An NBC affiliate in Bakersfiled called me on Wednesday to ask questions about the farm job issue. Many of the questions seemed designed to provoke an inflammatory comment from me about local Congressmen or Dr. Howitt that would make sensational TV news. I gave very boring, cautious answers to these questions because I was concerned about how it might be edited. Upon viewing the video report, it appears the reporter did a very balanced piece and I may have been overly cautions. The quotes from Dr. Howitt definitely got my attention. When the reporter asked me if this data showed that Dr. Howitt was wrong, maybe I should have just said "yes" instead of giving a long, boring, semi-answer that would never make the program.
Maybe he was taken out of context, but the report sure gives the impression that Dr. Howitt is spinning the latest revised farm jobs data as if it proves his estimate was on target. If you read my post from a few days ago, especially the part that compares farm job losses between regions (a bigger decrease in farm jobs outside the Valley than inside the Valley), you should find this hard to believe.
The TV report correctly notes 5,500 lost jobs in the San Joaquin Valley, then Dr. Howitt seems to suggest that this shows he was right because it was close to the 6,370 direct jobs he estimated in his revised September report, which then became 21,000 total lost jobs with all the indirect/induced effects. It's amazing that he would equate reported farm jobs with the direct losses in his study, because Dr. Howitt made major adjustments to his last study to increase the number of indirect farm jobs (labor contractors) estimated in the input-output model.
The 5,500 lost farm jobs in the new EDD data includes both direct farm employees and farm labor contractors. Farm labor contractor jobs are indirect jobs, because it is an input a farm hires from another company. The appendix to his report (see page 10) shows it plain as day, he estimated 6,370 direct farm jobs and another 6,047 indirect jobs in the farm sector (mostly in agricultural support services which is labor contractors) for a total of 12,423 lost Farm sector jobs. Labor contractor jobs are "indirect jobs" because these farm workers are not directly on the farm's payroll, but they are very much included in the Farm sector as defined in EDD and BLS data. Farm sector jobs are the vast majority of the indirect jobs, not the non-farm job categories he cites as examples in the TV report. 12,243 is more than double 5,500. It is understandable for a reporter or a non-economist to be confused by this aspect of the numbers, but it's unacceptable for an economist studying employment. Does he not understand this or is he intentionally trying to confuse the press?
You can watch the video of the report here. (Video is in upper right corner of page.)
Maybe he was taken out of context, but the report sure gives the impression that Dr. Howitt is spinning the latest revised farm jobs data as if it proves his estimate was on target. If you read my post from a few days ago, especially the part that compares farm job losses between regions (a bigger decrease in farm jobs outside the Valley than inside the Valley), you should find this hard to believe.
The TV report correctly notes 5,500 lost jobs in the San Joaquin Valley, then Dr. Howitt seems to suggest that this shows he was right because it was close to the 6,370 direct jobs he estimated in his revised September report, which then became 21,000 total lost jobs with all the indirect/induced effects. It's amazing that he would equate reported farm jobs with the direct losses in his study, because Dr. Howitt made major adjustments to his last study to increase the number of indirect farm jobs (labor contractors) estimated in the input-output model.
The 5,500 lost farm jobs in the new EDD data includes both direct farm employees and farm labor contractors. Farm labor contractor jobs are indirect jobs, because it is an input a farm hires from another company. The appendix to his report (see page 10) shows it plain as day, he estimated 6,370 direct farm jobs and another 6,047 indirect jobs in the farm sector (mostly in agricultural support services which is labor contractors) for a total of 12,423 lost Farm sector jobs. Labor contractor jobs are "indirect jobs" because these farm workers are not directly on the farm's payroll, but they are very much included in the Farm sector as defined in EDD and BLS data. Farm sector jobs are the vast majority of the indirect jobs, not the non-farm job categories he cites as examples in the TV report. 12,243 is more than double 5,500. It is understandable for a reporter or a non-economist to be confused by this aspect of the numbers, but it's unacceptable for an economist studying employment. Does he not understand this or is he intentionally trying to confuse the press?
You can watch the video of the report here. (Video is in upper right corner of page.)
Varshney AB 32 study creates debate
Outside of some popular posts on water, the most frequently read and cited post on this blog was about Sacramento State Dean Sanjay Varshney's report on the cost of state regulations.
Catching up on my pile of Sacramento Business Journals, I noticed Varshney's AB 32 report has stirred up a controversy in that paper. The most interesting quote from a February 26 article,
Are you kidding me? You wrote a report that said AB 32 will cost over 1 million jobs and wreck the state economy. That report is being quoted in critical state legislation, criticized by prominent academics from UCLA, Stanford and other places, and you say you aren't keeping up with the debate.
The article includes quotes from Stanford professor James Sweeney calling the report "highly biased", "based on poor logic and unsound analysis", "demonstrably false and biased and greatly overblown", and "very, very defective." Although I agree with Sweeney, I was cringing as I read this. Ouch! And right in your hometown Business Journal. I think Varshney/Tootelian are getting a rough lesson in the difference between doing an economic impact study for a new shopping center and serious economic policy analysis.
But, it gets even more interesting because the Sacramento Business Journal publishes a response on it's opinon page from the California Small Business Association. The article is titled, "Rather than attack AB 32 study, try solving small businesses' concerns."
Doesn't sound like they are standing firmly behind it to me, but the article gets a lot stronger a few paragraphs later,
Nice counter punch.
I completely agree with all of the criticism of the Varshney study AND with the CA Small Business Association's concerns raised in their rebuttal article. I hope the Small Business Association also realizes that they need to sponsor better research if they want to be taken seriously, and look for alternative sources the next time.
I think the current proposal of Assemblyman Logue to delay AB 32 implementation until unemployment drops below 5.5% has a ridiculous threshold that is nearly equivalent to repealing it. However, the general question of whether to delay the implementation for a year or two is very legitimate, and it is unfortunate that poor research has distracted from analyzing a serious question.
Postscript:
The Daily Hornet (Sacramento State student newspaper) has a new article as well. Not a good day for a Dean when your own campus newspaper is running articles calling your work "an embarrassment to the school" and you decline to comment to the student reporter.
Catching up on my pile of Sacramento Business Journals, I noticed Varshney's AB 32 report has stirred up a controversy in that paper. The most interesting quote from a February 26 article,
Asked whether he stands by the report's findings, and to comment on AB 32, Varshney declined. "I haven't really kept up with the debate," he said. "It will be difficult for me to comment."
Are you kidding me? You wrote a report that said AB 32 will cost over 1 million jobs and wreck the state economy. That report is being quoted in critical state legislation, criticized by prominent academics from UCLA, Stanford and other places, and you say you aren't keeping up with the debate.
The article includes quotes from Stanford professor James Sweeney calling the report "highly biased", "based on poor logic and unsound analysis", "demonstrably false and biased and greatly overblown", and "very, very defective." Although I agree with Sweeney, I was cringing as I read this. Ouch! And right in your hometown Business Journal. I think Varshney/Tootelian are getting a rough lesson in the difference between doing an economic impact study for a new shopping center and serious economic policy analysis.
But, it gets even more interesting because the Sacramento Business Journal publishes a response on it's opinon page from the California Small Business Association. The article is titled, "Rather than attack AB 32 study, try solving small businesses' concerns."
When the small-business community couldn’t get straight answers about the impacts of AB 32, we commissioned our own report by two researchers from California State University Sacramento. The findings, which the report’s authors firmly stand by, showed that AB 32 would cost small businesses an estimated $50,000 per year and our state would lose over 1.1 million jobs.
The fear of a heightened competitive disadvantage is very real for small-business owners.
Doesn't sound like they are standing firmly behind it to me, but the article gets a lot stronger a few paragraphs later,
While researchers from UC-Berkeley act as cheerleaders for AB 32, the president of the UC system is simultaneously complaining about the "significant compliance costs" for universities. In its comment letter to CARB, the UC Office of the President asks for special exemptions and states, "The University depends on the state of California for its operating budget and is concerned that without increased funding from the state, there is a strong potential that the university's only recourse will be to pass along the costs of AB 32 compliance to its students."
Nice counter punch.
I completely agree with all of the criticism of the Varshney study AND with the CA Small Business Association's concerns raised in their rebuttal article. I hope the Small Business Association also realizes that they need to sponsor better research if they want to be taken seriously, and look for alternative sources the next time.
I think the current proposal of Assemblyman Logue to delay AB 32 implementation until unemployment drops below 5.5% has a ridiculous threshold that is nearly equivalent to repealing it. However, the general question of whether to delay the implementation for a year or two is very legitimate, and it is unfortunate that poor research has distracted from analyzing a serious question.
Postscript:
The Daily Hornet (Sacramento State student newspaper) has a new article as well. Not a good day for a Dean when your own campus newspaper is running articles calling your work "an embarrassment to the school" and you decline to comment to the student reporter.
Wednesday, March 10, 2010
Peter Gleick on Temperance Flat and CVP subsidies.
From Peter Gleick's City Brights Blog:
In this same spirit, I would say give me $1.2 billion in interest free loans (and an apparant 300 year repayment schedule) and I will create tens of thousands of high paying jobs in the San Joaquin Valley that diversify the local economy.
Rather than spend $3.3 billion on Temperance Flat, I propose that the state gives Peter $1 billion to find new water and me $1 billion to create jobs. The state will get more water, more jobs and save money.
Even better, just vote no on the water bond. Let water prices rise to encourage conservation and investment in local supplies (like water recycling). Create jobs by spending or investing your money elsewhere, while preventing future tax increases or education cuts to pay off these bonds.
Water Number: 19%. As Bettina Boxall of the LA Times noted in her story this week, our experience with paying for past infrastructure should be a huge warning today. Irrigators who benefit from the federally built Central Valley Project have enjoyed the equivalent of a massive 60-year, interest-free loan. Not only have they failed to repay their share of the costs (having only repaid about 19% of their $1.2-billion share of the capital costs), but the federal government charges them no interest. Pretty sweet. Give me $1.2 billion in a very long-term, zero-interest loan and I can find you hundreds of thousands of acre-feet of water. Buy everyone efficient fixtures (washing machines, toilets, showerheads, urinals, drip or sprinkler systems, etc.) and get repaid over time through water bills savings.Read more: http://www.sfgate.com/cgi-bin/blogs/gleick/detail?blogid=104&entry_id=58858#ixzz0hpBzi7bI
In this same spirit, I would say give me $1.2 billion in interest free loans (and an apparant 300 year repayment schedule) and I will create tens of thousands of high paying jobs in the San Joaquin Valley that diversify the local economy.
Rather than spend $3.3 billion on Temperance Flat, I propose that the state gives Peter $1 billion to find new water and me $1 billion to create jobs. The state will get more water, more jobs and save money.
Even better, just vote no on the water bond. Let water prices rise to encourage conservation and investment in local supplies (like water recycling). Create jobs by spending or investing your money elsewhere, while preventing future tax increases or education cuts to pay off these bonds.
Revised Farm Job Estimates
Today, the CA EDD released revised employment estimates for counties. On Friday, the statewide revisions were released and the statewide loss in farm jobs between 2008 and 2009 was revised from -1,700 to -13,500. Does this mean that water has had greater effects than I forecast? No. Look at the geographical breakdown.
In the San Joaquin Valley, farm jobs declined from 191,700 to 186,200, a decrease of 5,500 or 2.87%.
For areas of California outside the San Joaquin Valley, farm jobs declined even more. Non-SJ Valley jobs decreased from 197,600 to 189,600, a decrease of 8,000 or 4.05%.
In percentage terms, the largest decline in farm jobs was in Imperial County. There were also significant declines in other Southern California areas such as Ventura, San Diego, Riverside, Orange, etc.
How does this compare to our forecast of 8,500 lost jobs in the San Joaquin Valley (made up of 5,400 farm jobs and 3,100 related non-farm jobs)? As tempting as it is to say that our prediction of 5,400 lost farm jobs was really close to the 5,500 job loss estimated by EDD, there is no way to know exactly because we don't know how many jobs there would have been with full water. Perhaps farm jobs would have increased because of the increased labor supply due to the recession (an effect I have emphasized before). On the other hand, farm jobs might have decreased because of the recession effects including lower commodity prices/revenue and tight bank credit. Even though we can't know for sure, I think it is safe to conclude from this latest data that our forecasts were very reasonable.
[Update 3/11: Since declines were larger outside the SJ Valley than inside, a reasonable conclusion might be that pumping restrictions had little/no effect and even our estimates of job loss were too high. I would caution against that conclusion. Within the SJ Valley, the farm job losses were concentrated in Kern and Fresno counties, the areas most impacted by water declines. The rest of the SJ Valley showed little change. So, I think water did have some impact and our forecasts were pretty close. It may be that our original 6,000 lost job estimate was more accurate than the revised 8,500 lost job estimate, but we have been working in the correct range all along. Water and agriculture remains a very small piece of the toll the recession is taking on the general economy (at most 0.1% of the statewide decline), and farming did outperform every sector of the economy but healthcare in 2009. And don't forget that most of the water impacts are due to drought, not ESA pumping restrictions.]
If you are confused about the data revisions, see the previous post.
In the San Joaquin Valley, farm jobs declined from 191,700 to 186,200, a decrease of 5,500 or 2.87%.
For areas of California outside the San Joaquin Valley, farm jobs declined even more. Non-SJ Valley jobs decreased from 197,600 to 189,600, a decrease of 8,000 or 4.05%.
In percentage terms, the largest decline in farm jobs was in Imperial County. There were also significant declines in other Southern California areas such as Ventura, San Diego, Riverside, Orange, etc.
How does this compare to our forecast of 8,500 lost jobs in the San Joaquin Valley (made up of 5,400 farm jobs and 3,100 related non-farm jobs)? As tempting as it is to say that our prediction of 5,400 lost farm jobs was really close to the 5,500 job loss estimated by EDD, there is no way to know exactly because we don't know how many jobs there would have been with full water. Perhaps farm jobs would have increased because of the increased labor supply due to the recession (an effect I have emphasized before). On the other hand, farm jobs might have decreased because of the recession effects including lower commodity prices/revenue and tight bank credit. Even though we can't know for sure, I think it is safe to conclude from this latest data that our forecasts were very reasonable.
[Update 3/11: Since declines were larger outside the SJ Valley than inside, a reasonable conclusion might be that pumping restrictions had little/no effect and even our estimates of job loss were too high. I would caution against that conclusion. Within the SJ Valley, the farm job losses were concentrated in Kern and Fresno counties, the areas most impacted by water declines. The rest of the SJ Valley showed little change. So, I think water did have some impact and our forecasts were pretty close. It may be that our original 6,000 lost job estimate was more accurate than the revised 8,500 lost job estimate, but we have been working in the correct range all along. Water and agriculture remains a very small piece of the toll the recession is taking on the general economy (at most 0.1% of the statewide decline), and farming did outperform every sector of the economy but healthcare in 2009. And don't forget that most of the water impacts are due to drought, not ESA pumping restrictions.]
If you are confused about the data revisions, see the previous post.
Friday, March 5, 2010
Unemployment Friday
The real news in this month's release is the annual benchmark revision to the payroll survey. We have been warning people for months that there will be an unusually large downward revision, possibly as much as 150,000 taking total job loss in the recession to around 1.2 million.
Well, the number we got today was a downward revision of 338,000, an absolutely stunning 2.4% additional decline in the top line non-farm jobs number. I guess we can tack on another year to how long it will take us to regain our pre-recession payrolls.
How does this happen? Remember the monthly employment reports are based on survey data. It is a very reliable, time tested, large sample survey of 42,000 California businesses. Still, it is survey data and subject to revision. Normal annual revisions are relatively modest and can go up or down.
To understand what is going, you need to realize that the full sample of employment data comes from actual unemployment tax receipts and there is about a 9-12 month lag in compiling this data. So, each March they rebenchmark the series to the full tax rolls (we now have a March 2009 benchmark) - and use this as the new take-off point for the current estimates based on survey data.
So this new series is based on a much more complete understanding of what actually happened to payrolls during the early stages of the recession in 2008, as well as the deepest part of the downturn in the 1st quarter of 2009. It was even worse than we thought at the time.
The California unemployment rate ticked up to 12.5% adding to the bad news. The monthly increae of 32,500 seasonally adjusted jobs is being overinterpreted and is just a bounce back from the overly large decline of nearly 40,000 jobs last month. Overall, our view is that payroll jobs are bouncing along the bottom at the moment and we sholdn't over react to seasonal noise (especially in December/January data).
EDD is delaying release of detailed data, and data for metro areas until next week. They are having delays with the new benchmarking process - and given the scale of the statewide revisions - it is not hard to see why. So, we will have another unemployment update next week focusing on the metros.
P.S. Since the blog has a lot of readers following the farm jobs discussion, I should mention that the farm jobs were revised down too - something I have been warning people about who are overemphasizing the less than 0.5% decline in statewide farm payrolls between 2008 and 2009. Still, the downward revisions appear to be smaller than for non-farm jobs (Update 5/7: I was wrong, the downward revisions for farm jobs are a little larger than non-farm jobs.) I will dig into this more when the detailed data is released next week.
Well, the number we got today was a downward revision of 338,000, an absolutely stunning 2.4% additional decline in the top line non-farm jobs number. I guess we can tack on another year to how long it will take us to regain our pre-recession payrolls.
How does this happen? Remember the monthly employment reports are based on survey data. It is a very reliable, time tested, large sample survey of 42,000 California businesses. Still, it is survey data and subject to revision. Normal annual revisions are relatively modest and can go up or down.
To understand what is going, you need to realize that the full sample of employment data comes from actual unemployment tax receipts and there is about a 9-12 month lag in compiling this data. So, each March they rebenchmark the series to the full tax rolls (we now have a March 2009 benchmark) - and use this as the new take-off point for the current estimates based on survey data.
So this new series is based on a much more complete understanding of what actually happened to payrolls during the early stages of the recession in 2008, as well as the deepest part of the downturn in the 1st quarter of 2009. It was even worse than we thought at the time.
The California unemployment rate ticked up to 12.5% adding to the bad news. The monthly increae of 32,500 seasonally adjusted jobs is being overinterpreted and is just a bounce back from the overly large decline of nearly 40,000 jobs last month. Overall, our view is that payroll jobs are bouncing along the bottom at the moment and we sholdn't over react to seasonal noise (especially in December/January data).
EDD is delaying release of detailed data, and data for metro areas until next week. They are having delays with the new benchmarking process - and given the scale of the statewide revisions - it is not hard to see why. So, we will have another unemployment update next week focusing on the metros.
P.S. Since the blog has a lot of readers following the farm jobs discussion, I should mention that the farm jobs were revised down too - something I have been warning people about who are overemphasizing the less than 0.5% decline in statewide farm payrolls between 2008 and 2009. Still, the downward revisions appear to be smaller than for non-farm jobs (Update 5/7: I was wrong, the downward revisions for farm jobs are a little larger than non-farm jobs.) I will dig into this more when the detailed data is released next week.
Tuesday, March 2, 2010
Arambula Bill Opponents Need Better Answers
Juan Arambula has proposed a new bill to limit farm-to-urban water transfers. I am probably the only economist on the planet who is happy to see this bill. Sometimes a little daylight is more important than marginal gains in economic efficiency. From the Fresno Bee,
Finally, UC-Davis civil engineer Jay Lund weighs in on economics,
I wonder if the Latino Water Coalition will accuse Dr. Lund of being an out-of-touch academic who hates farm workers? He is advocating trades that will put farm workers out of a job. Or is it OK when you support building a peripheral canal.
[A few minor edits made later plus comment. Lund isn't all wrong here, and is certainly being a lot more honest than Mr. Mills and Mr. Vidovich so I am probably too harsh. But it is important to note the difference between this and a GM factory - especially since the federal government has made investments in both west side farms and GM in the name of economic development.]
“What am I going to tell folks when farmers sell their water and put farmworkers out of a job — and they make millions at the public’s expense?” said Arambula, who has long pushed for state water investments in the Valley.I believe that Arambula is very sincere in his concern for farmworkers and taxpayers. I have a hard time being against Arambula's bill for economic reasons when it's opponents are offerring up these gems.
“Very few of these sales are voluntary,” said Don Mills, chairman of the Kings County Water Commission, which advises that county on water issues. “The economics are forcing the farmers to sell the water.”Sounds like that check was loaded and aimed right at the farmer's head. Not voluntary, hah!
Sandridge partner John Vidovich said: “I don’t like selling the water. I hated it.” But he said the company’s allocations from the State Water Project have dipped so low that it makes farming cost prohibitive. He blamed environmental pumping cutbacks at the Sacramento-San Joaquin Delta — the state’s water hub — and promised to reinvest the $73 million in agriculture, mostly in finding alternative sources of water.Farming is so cost-prohibitive that Mr. Vidovich is going to reinvest all the money back into farming without surface water. Vidovich, a Silicon Valley real estate developer must really love farming, because I doubt he became a millionaire with that kind of business mentality. I bet he regains his business acumen before he burns through all the $73 million.
Finally, UC-Davis civil engineer Jay Lund weighs in on economics,
“In some ways it’s not much different from General Motors deciding to close a factory and sell off the equipment from a factory,” he said. Farmers are “allowing water to go to a different use that has high economic value to the state of California.”Yeah, it's just like General Motors. GM has been unprofitable for years and entered bankruptcy, with many of its problems created by unsustainably generous employee compensation, benefits and pensions. Valley agriculture enjoyed record profits most of this decade while its employee's pay and working conditions remained the worst of any occupation. Oh, and when taxpayers bail out GM they get an equity stake in the company, and they are paying back the loans ahead of schedule. Westlands is just a wee bit behind paying back their zero interest government loans, and taxpayers would own most of the Valley's westside if the farmers' deal was like GM. Other than that, the parallels are uncanny.
I wonder if the Latino Water Coalition will accuse Dr. Lund of being an out-of-touch academic who hates farm workers? He is advocating trades that will put farm workers out of a job. Or is it OK when you support building a peripheral canal.
[A few minor edits made later plus comment. Lund isn't all wrong here, and is certainly being a lot more honest than Mr. Mills and Mr. Vidovich so I am probably too harsh. But it is important to note the difference between this and a GM factory - especially since the federal government has made investments in both west side farms and GM in the name of economic development.]
Delta Smelt Forced Westside Farmers to Plant Almonds
According to the Pacific Legal Foundation in a letter to the editor of the Sacramento Bee,
I really don't understand the Pacific Legal Foundation when it comes to California water. They supposedly stand for limited government and private property rights. Yet, here they are supporting the Central Valley Project, one of the great American examples of the problems with big centralized government economic planning. And it is farmers on the other side of the pumps that are filing takings lawsuits against the government water planners without the support of PLF.
If you feel strongly about limited government, property rights and environmental stewardship; I strongly recommend the very thoughtful Property and Environment Research Center (PERC) as an alternative to PLF. I would be very interested in seeing some of my old friends from PERC discuss these issues with PLF.
Update: Here is my alternative wording of the last sentence with which most economists would agree. "The shift to higher value crops has increased the cost to farmers of government attempts to help fish." That is true, but the farmers made a high risk business investment decision in hope of higher profits. PLF's agenda creates a moral hazard risk, something of great concern to conservative economists (see conservative criticism of Wall Street bailout for example).
Suggesting that farmers would "be prudent" to rely on field crops reveals how little The Bee knows about agricultural economics. Look at the free fall in the San Joaquin Valley's cotton acreage in recent years if you think growing field crops is prudent. Misguided government attempts to help fish have forced farmers to shift to higher valued crops.I am confident that the vast majority of agricultural economists would disagree with that last sentence.
I really don't understand the Pacific Legal Foundation when it comes to California water. They supposedly stand for limited government and private property rights. Yet, here they are supporting the Central Valley Project, one of the great American examples of the problems with big centralized government economic planning. And it is farmers on the other side of the pumps that are filing takings lawsuits against the government water planners without the support of PLF.
If you feel strongly about limited government, property rights and environmental stewardship; I strongly recommend the very thoughtful Property and Environment Research Center (PERC) as an alternative to PLF. I would be very interested in seeing some of my old friends from PERC discuss these issues with PLF.
Update: Here is my alternative wording of the last sentence with which most economists would agree. "The shift to higher value crops has increased the cost to farmers of government attempts to help fish." That is true, but the farmers made a high risk business investment decision in hope of higher profits. PLF's agenda creates a moral hazard risk, something of great concern to conservative economists (see conservative criticism of Wall Street bailout for example).
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